California Democrats idolize Hollywood tax-break loophole

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Democratic politicians and liberal groups, including unions, often rail against corporate-tax loopholes as unjustified raids on the public treasury — as they should.

Loopholes are particularly troublesome during periods such as this one, when California state and local budgets are leaking red ink and basic public services are being slashed.

But one multimillion-dollar loophole draws vocal support from those who usually oppose corporate tax breaks — one that happens to benefit a heavily unionized industry whose top executives are overwhelmingly Democrats and contribute lavishly to the party’s candidates and causes.

That would be Southern California’s movie and television production community.

Two years ago, Arnold Schwarzenegger signed a tax credit for in-state film production. This year, Assemblyman Felipe Fuentes, D-Sylmar, introduced legislation to extend the $100 million-per-year subsidy for five additional years.

Assembly Bill 1069 sailed through the Assembly on a 77-1 vote, and then through the Senate Governance and Finance Committee unanimously.

It hit the Senate Appropriations Committee on Monday and was universally praised by committee members and lobbyists for the film industry and its unions.

As supporters told it, the tax credit makes California more competitive with rival states, has had a beneficial impact on stemming “runaway production,” and saves thousands of jobs that otherwise would vanish.

But has it?

Disinterested analysts, including the Legislature’s own budget adviser, have raised serious doubts about the credit’s supposed benefits, in part because it’s impossible to quantify how much of the subsidy goes to production that would have taken place in California without the tax credit.

A lengthy analysis by the Senate Governance and Finance Committee catalogued the doubts, noted that film companies can claim the credit on top of other state tax breaks, and suggested that before it’s extended for five more years, more objective study of its economic impacts is needed.

That’s true of all “tax expenditures,” as the loopholes are officially known. There are literally tens of billions of dollars a year in income, sales and property tax breaks on the books, some of which enjoy broad acceptance as well as others that, like the film production credit, are drawn to benefit a very narrow segment of society.

Closing unjustified loopholes should be the first choice when politicians are looking for additional revenue.

The film credit could be eliminated when it expires in 2014 because Gov. Jerry Brown’s representative, citing the potential loss of revenue, opposed Fuentes’ extension measure Monday.

Dan Walters’ Sacramento Bee columns on state politics are syndicated by the Scripps Howard News Service.